Senators looking to markets for their cue

Monday

Oct 14, 2013 at 12:01 AMOct 14, 2013 at 11:08 AM

WASHINGTON - What started as a mad dash to strike a deal to lift the federal debt limit slowed to a crawl over the weekend as stalemated Senate leaders waited nervously to see whether financial markets would plunge this morning and drive the other side toward compromise.

WASHINGTON — What started as a mad dash to strike a deal to lift the federal debt limit slowed to a crawl over the weekend as stalemated Senate leaders waited nervously to see whether financial markets would plunge this morning and drive the other side toward compromise.

Republicans seemed to think they had more to lose. After talks broke down between President Barack Obama and House leaders, GOP senators quickly cobbled together a plan to end the government shutdown — now entering its third week — and raise the $16.7 trillion debt limit. Senate Minority Leader Mitch McConnell, R-Ky., then asked Majority Leader Harry Reid, D-Nev., to elevate negotiations to the highest level.

Yesterday — with the Treasury Department due to exhaust its borrowing power in only four days — Reid was wielding that leverage to maximum advantage. Rather than making concessions that would undermine Obama’s signature health-care initiative, as Republicans first demanded, Democrats now are seeking to undo what has become a cherished prize for the GOP: deep agency spending cuts known as the sequester.

Reid and McConnell spoke only once yesterday, a telephone call in the afternoon, aides said. As he closed a rare Sunday session of the Senate, Reid characterized the conversation as “productive” and “substantive.”

“I’m optimistic about the prospects for a positive conclusion to the issues before this country today,” he said.

But the shift in focus away from the imminent threat of a default on the U.S. debt sparked outrage among Republicans and alarm among the world’s financial leaders, meeting this weekend in Washington.

International Monetary Fund managing director Christine Lagarde warned on NBC’s Meet the Press that a failure by the United States to make scheduled payments to investors “would mean massive disruption the world over. And we would be at risk of tipping yet again into a recession.”

Republicans, meanwhile, said any agreement to back away from the sequester cuts would be opposed by GOP senators and doomed in the Republican House.

The fight over the debt limit is “typically a point where you try to create reforms and reduce deficits, so to agree to something that raises spending from previously agreed-to levels, I just can’t imagine that,” said Sen. Bob Corker, R-Tenn. “I just can’t imagine how that has any possibility of becoming law.”

Democrats insisted that they have no interest in rolling back the sequester cuts now. Reid noted that the Senate already had approved and sent to the House a measure that would leave the cuts in place through the middle of November, with “not a word about breaking (spending) caps,” Reid said on the Senate floor.

Instead, Democrats said they objected to a debt-limit plan developed by Sen. Susan Collins, R-Maine, because it would permit the cuts to stay in place through March, allowing another round of sequester cuts to hit on Jan. 15.

At that point, agency spending for fiscal 2014, which began on Oct. 1, would be on track to fall roughly $90 billion lower than Democrats have proposed. And with the fiscal year half over, Democrats would have scant opportunity to renegotiate the numbers, a top priority.

Yesterday, Democrats familiar with the talks said Reid was pressing McConnell to accept a quicker deadline on a temporary measure to fund federal agencies and reopen the government and a longer deadline for raising the debt limit. Collins’ proposal would extend the Treasury Department’s borrowing authority only until the end of January.